How to Get Started in Investing

How to Get Started in Investing

Making the leap from saving to investing can be a bit daunting. Historically, that’s particularly been the case for women. Afraid to make the wrong move. Not sure whether we have enough knowledge to get the ball rolling. And often feeling overwhelmed by the excessive amount of information available on the internet.

There are a few particular reasons why I’m motivated to invest. I know it helps my hard-earned dollars work smarter for me. Exposing myself to stock market volatility isn’t always fun, it allows me to protect the purchasing power of my money. And investing creates an opportunity to pay for very expensive long-term goals like retirement and college education funding.

It’s worth “starting with the why” as Simon Sinek would say.

But this article isn’t about why, it’s about how you can officially add investor to your bio. I differentiate a saver from an investor in one simple way: a saver has any or all of their money sitting in cash (or another short-term vehicle that’s highly liquid). An investor has taken a leap and used some of that cash to purchase stocks, bonds, ETFs, mutual funds, real estate, etc. These shares or other forms of ownership are subject to market risk and historically produce a higher rate of return than cash, over the long term.

Here are three ways to begin investing (in no particular order):

1. Take advantage of an employer-sponsored retirement plan available at work.

It’s not enough to simply make contributions to your 401(k)/403(b)/Simple IRA/TSP. You need to ensure that money is invested. If you’re not sure where to start, consider investing in a target-date fund that aligns with your general retirement timeline, i.e. Target Retirement 2045. While not all target-date funds are created equal, I’d rather have you invested in the market than leaving your money sitting in cash. A target-date fund is also preferable to having your money over exposed to the market. For example, invested in 100% equities if that’s not appropriate for your risk tolerance or time horizon.

2. Open a brokerage account.

There are a variety of robo advisors (an automated system) that can create a portfolio for you, as long as you’re willing to pay a small fee. This takes the pressure off you to make investment selections. Also note that these accounts are taxable, and therefore you will pay taxes on any capital gains you’ve incurred from sales. Unlike the tax-deferred accounts listed above.

3. If you don’t have an employer plan available through work, consider investing in a Roth IRA so long as your income is less than $122,000 for single filers and $193,000 for couples that are married filing jointly.

You can put in as much as $6,000/year into this account, assuming you are not investing in a Traditional IRA. Once your money is in the Roth IRA, you could invest in a target-date fund, or another asset allocation fund that best describes your risk tolerance, i.e. Moderate allocation fund. These funds are popular for new investors seeking broad market diversification.

Well, there it is. The complicated world of investing broken down to bite-size pieces. If this still seems a bit confusing, feel free to give us a call. We love educating clients about the investing world and building a custom solution for their needs. We don’t manage assets here at MainStreet. In other words, we’re not paid from a percentage of your investments. We’re happy to provide you with unbiased feedback and discuss the ways can begin investing in a low-cost way.

MainStreet Team
MainStreet Team

MainStreet Financial Planning, Inc., an independent fee-only financial planning firm was founded in Maryland in 2002 by Jim Ludwick, CFP® who passionately believed that financial planning advice should be accessible to people from all walks of life without product sales and investment management services. In 2006 Anna Sergunina, CFP® joined the team and together they grew MainStreet Financial to a nationally recognized company, with a team of 6 staff members and 5 offices across the country.

Get Started with MainStreet

Stay updated on future articles, shows, and podcasts